Weekly Energy Market Update - 06/07/2020

6 Jul 2020

Home Weekly Energy Market Update - 06/07/2020

Last Week’s Pricing & Commentary

Commodity

Unit

Settlement Price

Change Since 01 Jan 20

Change on Week

UK Gas NBP Aug 20

p/therm

15.11

-48.45%

9.33%

UK Gas NBP Winter 20

p/therm

33.64

-22.57%

2.88%

UK Gas NBP Summer 21

p/therm

31.05

-18.72%

3.67%

UK Power Base Aug 20

£/MWh

32.25

-15.33%

2.45%

UK Power Base Winter 20

£/MWh

46.09

-4.44%

3.18%

UK Power Base Summer 21

£/MWh

41.23

-2.87%

4.35%

Carbon EUA Dec 20

€/tonne

27.91

13.32%

13.69%

Oil Brent Crude Sep 20

$/barrel

42.80

-31.79%

5.68%

Last week’s main point of focus was carbon exploding upwards, dragging power and gas curves with it. Dec 20 EUAs began the week trading down in the mid €24.50s and rallied hard in Monday’s trading to settle €2.08/tonne higher on the day, breaking through several key technical levels. This had analysts divided over carbon sentiment with technical analysts moving price targets up above €27 and then later in the week to above €28 and discussions of the contract eying €30 in the coming weeks. Analysts looking at fundamentals, however, described the contract as overbought on demand destruction, high coal-to-gas fuel switching and loosening power markets as EDF revised output targets higher. Despite this spread in opinion, one thing it was clear to see was the effect on the rest of the complex as Aug 20 NBP and UBL gained 2.30p/therm and £1.69/MWh on Monday.

The rest of the week was spent drifting lower for front month power and gas as weaker prompt markets bit on ramping up renewable output and dropping demand. Seasonal gas also moved higher on the week, supported by carbon, with Winter 20 and Summer 21 gaining 0.94p/therm and 1.10p/therm respectively. Seasonal power tracked gas and carbon gaining £1.42/MWh and £1.72/MWh on the week, although expectations of less tight continental power markets into Q4, as EDF’s nuclear output target was revised higher, helped to cap gains on the winter contract. Brent markets were ultimately stronger on the week with Sep 20 Brent gaining $2.30/barrel. Markets were supported by sentiment that markets were getting tighter after surprise drawdowns in US crude stockpiles signalled some return in demand and supply cuts began to bite. However, gains were capped by rising COVID-19 cases, which saw some US states bring back forms of lockdown.

Last Week’s Average Generation Stack

 

Gas

Wind

Solar

Hydro

Nuclear

Imports & Exports

Biomass

Pumped Storage

Coal

GW

10.85

8.39

4.21

0.46

5.04

1.61

2.13

0.06

0.00

%

33.14

25.61

12.87

1.41

15.38

4.90

6.50

0.18

0.00

This Morning’s View

This morning has seen UK gas dragged higher by rocketing carbon prices. Winter 20 NBP is currently up 0.81p/therm whilst Dec 20 EUAs are up €1.20/tonne having broken through the €29/tonne level and could be eying €30. Prompt gas could see pressure from an NTS forecast almost 24 mcm long as power demand has dropped from levels above 77 mcm last week to just 25 mcm this morning on strong wind output, currently over 13GW. However, with 13 mcm of gas being injected to storage, we could see some support for pricing and length eroded into the afternoon. Henry Hub pricing also looks to be remaining depressed, which could see an influx of LNG into UK/Europe in August and into late Q3/Q4, further pressuring the prompt. Brent markets are stronger again this morning with the Sep 20 contract currently up $0.78/barrel. The EIA report out later this week will give the market some more context on the effects of rising US Covid-19 cases on fuel demand, which could see volatility tick higher despite recent calmer price action.
 

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